Examination of Witnesses (Questions 60-79)
DEPARTMENT FOR
TRANSPORT
9 JUNE 2008
Q60 Mr Davidson: Can I just seek
some basic information about this? Could I turn to chart one in
the front of the Report and I want to be clear whether or not
I am understanding this correctly. From the outline business case
to the forecast costs, in terms of gross benefits am I right in
thinking that gross benefits have actually gone down from £112
million expected to £40 million, so that is 35% of the target.
The set up costs have gone up by 300% from roughly £35 million
to £114 million. Am I reading that correctly?
Mr Devereux: I fear you are with
the single exception, as I have said to the Chair when we first
began, the £40 million is the number which we can point to:
individuals whose posts are being saved.
Q61 Mr Davidson: I think a figure
we can point to is always helpful. You originally estimated that
it was going to save us £57 million but it has actually cost
us £81 million.
Mr Devereux: It would cost us
£81 million if we did nothing between now and 2015.
Q62 Mr Davidson: On the basis of
proceeding with what you have at the moment, unless you make subsequent
changes something that that was planned to save us £57 million
will actually cost us £81 million.
Mr Devereux: Unless we do the
things we have planned to do, that is correct.
Q63 Mr Davidson: I understand there
are subsequent changes. Once you have realised you are in a hole
you possibly stop digging and start digging another hole. Were
you to remain on the track that you were it would have gone from
a £57 million saving to an £81 million cost. You were
not there at the time, but we have made such a mess of this I
presume your predecessor has been promoted.
Mr Devereux: My predecessor retired
a year ago.
Q64 Mr Davidson: Is he in the House
of Lords, by any chance?
Mr Devereux: Not last time I looked.
Q65 Mr Davidson: That is usually
what happens in these sorts of circumstances. Can I just clarify
the figures on table ten on page 29? Am I right in thinking that
the bottom line here is telling us that the net figure is actually
going to cost us £81 million by 2015?
Mr Devereux: That table there
simply shows year by year the table that you started on, table
one.
Q66 Mr Davidson: So as time goes
on things get worse and then they get slightly less bad than they
were before. We end up having undertaken an enormous exercise
with a net result that it has cost us a lot of money.
Mr Devereux: Perhaps I could take
you to page 47.
Q67 Mr Davidson: Is that the gist
of it?
Mr Devereux: That would be the
case if I did nothing.
Q68 Mr Davidson: I understand that;
I understand that you are there trying to rescue us from the mess
that other people got us into. I am seeking to clarify about the
mess that we are presently in.
Mr Devereux: The reason I stress
this is because it sounds as if there is actually an agreed plan
to deliver us minus 80.
Q69 Mr Davidson: There is no agreed
plan?
Mr Devereux: Okay, let us take
it slowly then. What the National Audit Office say is that they
have taken what happens to be a projection of the benefits available;
it is not a benefit projection actually sanctioned by the Programme
Board. As the Report quite carefully says, the senior management
in the Department are still anticipating that we will deliver
309 heads. Those numbers have been calculated on the basis of
215 heads. The 215 are the ones we can point to.
Q70 Mr Davidson: If we leave it with
the people who have got us into the position that we are in at
the moment that is where we will end up, unless changes are made.
I understand that; things can only get better. Can I turn to paragraph
2.14? Am I reading this correctly that the Shared Service Centre
has worked out so badly that the Department is having to subsidise
its running costs? Is that correct?
Mr Devereux: That is not a surprise
at this stage in the evolution.
Q71 Mr Davidson: So this was part
of a cunning plan.
Mr Devereux: You have to construct
a shared service centre in order to get started on a programme
like this. To begin with you only have two customers, DVLA and
DSA. In due course we shall have seven. That means that you have
a choice, you either charge the first two customers through the
door the full cost of operating the shared services or you charge
them the sum of money which is consistent with the long term charge.
Q72 Mr Davidson: I see here that
due to delays in migration the central Department has funded an
additional £2 million as a Programme cost (this is at the
bottom of paragraph 2.14). Can you just clarify how much the central
Department will be paying as a subsidy and how much it originally
planned to pay?
Miss Moorhouse: The original assumption
was that the Shared Service Centre costs would all be charged
out to the various agencies and customers; that is exactly what
you would expect from a normal shared service centre operation
once it is in full swing and has gone through the implementation
phase. The situation that we face is that the charges that were
agreed with the customers who were going to come onto our Shared
Service Centre were set historically based on their volumes. We
have honoured those original agreements as to how much those customers
would pay so there are two challenges that face our Shared Service
Centre, the first is the sheer number of users is going to be
slightly lower because we are not at this stage committed for
all the user functions transferring to the Shared Service Centre;
that is set out in the Report. Secondly, the major challenge to
our Shared Service Centre, that we are working on very actively,
is that our IT costs to run that Shared Service Centre are significantly
higher than expected for a variety of reasons. That is where the
main difference is in the assumptions as between the original
business case and the figures as you see them today.
Q73 Mr Davidson: Can I just clarify
how much at the moment you are subsidising the Shared Service
Centre by?
Miss Moorhouse: In 2007/08 we
will have subsidised it in the sense that there will be a deficit
between customer charges and the overall running costs of approximately
£7 million. That will reduce with MCA and DfTC.
Q74 Mr Davidson: What was the anticipated
figure?
Miss Moorhouse: It will reduce
to three. As I said earlier, the assumption was that there would
be no subsidy, that the full costs would be recovered through
customer charges in the normal way that a shared services centre
would operate.
Q75 Mr Davidson: I understand that
point, that it was going to come in gradually and was not going
to be one big bang.
Miss Moorhouse: That is right,
it was going to be a gradual implementation.
Q76 Mr Davidson: Can I seek some
clarification as to the opportunity costs? What would have been
done with that money had it not been wasted on this scheme?
Mr Devereux: It is only wasted
on this scheme if I do not turn it around.
Q77 Mr Davidson: The money has gone.
Mr Devereux: The reason that the
National Audit Office records net present values is to look at
things over time.
Q78 Mr Davidson: So you will have
savings hopefully in the future. There are schemes which otherwise
would have gone ahead which will not have gone ahead because you
were subsidising these. Can you clarify for me what those projects
were?
Mr Devereux: I would have to think
about that.
Q79 Mr Davidson: I think it would
be helpful if we had a note on what things have been foregone
as a result of this. The other point I particularly wanted to
pursue is the question of software work going abroad. IBM and
the Department, as I understand it, took software development
work abroad on the basis that it would save money, but you cannot
tell us how much money it saved. Indeed, there is no proof that
it did actually save money at all.
Mr Devereux: At the point at which
we were looking at, the estimated increase in cost by the time
we got to the interim business case in January 2006—which
one of your colleagues has observed is going up—we consciously
looked at ways in which we could deliver the same thing for less
money. We talked about getting work done offshore in India which
is circa one-third the expense. The plan and the contracts we
signed presumed that it would be relatively quick to accredit
for security purposes the work done in India. In practice, as
the Report observes in 1.18, we were not supplied with all the
necessary technical documentation which enabled the internal government
officials to prove that logging in from India was going to be
safe. You have to remember that this is an environment which is
actually connected up to the Government's secure intranet and
we do not really want people logging in unless we are confident
it is secure. We embarked on this in order to save money. We have
done some work in India but the reality is that, given the time
pressure we were under, some of the work we had anticipated doing
in India was ultimately done onshore at a higher cost.
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